Brazil is poised to become the first country in the world to break the patent on an Aids drug, opening a new front in the battle for cheap medicines for the world's poor.

Jose Serra, the Brazilian Health Minister, announced the move on Wednesday after talks with the Swiss pharmaceutical company Roche broke down over the price of its Aids drug nelfinavir, marketed in Brazil as Viracept.

Mr Serra said the government had been seeking price cuts of 40 per cent in the cost of the drug, which is part of an anti-Aids cocktail distributed free to all HIV patients in the country. The company had offered cuts of only 13 per cent, he said.

"We tried to get a price cut but we didn't get what we thought was fair so we're going to grant a compulsory licence so that it can be produced more cheaply in Brazil," he told reporters outside Congress in Brasilia. "Our idea is to have the medication available in February of 2002."

He added that Roche could still try to come up with an offer "to meet our needs, but we aren't going to wait any more, we are starting production".

The move was hailed by Oxfam yesterday, who said it could end the monopoly of the drugs market enjoyed by multinational pharmaceutical companies in the developing world. "Every developing country in the world will be watching Brazil," a spokesman said.

Although several countries, such as India, have made drugs that are still under patent elsewhere in the world, at a fraction of the normal cost, none has so far broken the patent laws.

In South Africa, the world's main pharmaceutical companies were forced into a humiliating climbdown after they challenged a clause in the country's medical act permitting the government to manufacture its own cheap drugs. A public outcry forced the companies to withdraw and the medical act passed into law, with the clause intact. Brazil's move extends the challenge to the pharmaceutical companies' dominance.

Under an international agreement in the mid-1990s to protect intellectual property rights, all countries are to implement intellectual property laws but were given different dates by which to do so. Brazil implemented its law in 1997 but India was given until 2003, so Indian drug companies manufacturing drugs patented in the West are not breaking any national laws.

Brazil implemented its intellectual property law in 1997, which gives the move it is about to make global importance.

Mr Serra said he would employ a clause in the law that allows patents to be broken in cases of national emergency or when companies employ abusive pricing policies. Spending on Viracept accounts for 28 per cent of Brazil's $303m(£209m) Aids budget. The country's liberal prescribing policy is credited with cutting the annual number of Aids-related deaths from 11,024 to 4,136 in the past four years. The programme has been hailed as a model for other developing countries where few can afford expensive treatment. But less than 1 per cent of the population are infected with HIV in Brazil compared with 25 per cent in some African countries.

Brazil, which has the highest number of Aids patients in Latin America, already manufactures eight of the 12 drugs given free to patients as part of its Aids programme. It started producing these drugs before its 1997 patent law was introduced and so has not faced any legal objections. About 100,000 people are treated under the programme.

In a statement, the Health Ministry said the decision to break the patent on Viracept had been taken "after six months of negotiation and after exhausting all the possibilities for an agreement" with Roche Laboratories. Roche would continue to supply the drug until December when its contract with the Health Ministry ends, it said.

Roche sought to head off the challenge to its monopoly yesterday. "We are very close to reaching an agreement which is based upon a further discount," a spokesman said.